When it comes to finding dividend growth stocks, it pays to look outside the mainstream FTSE 100 companies that every man and his dog owns. For example, look at high yielders Royal Dutch Shell and GlaxoSmithKline. Neither of these companies have increased their dividends in the last two years, meaning that, with inflation running at 2-3% per year, investors are losing purchasing power on their dividend income.
With that in mind, here’s a look at a company that has increased its dividend significantly in recent years.
RPC Group (LON: RPC) (RPC.L) is a plastics and packaging company that has operations in over 34 countries across the world. The company has made a string of acquisitions in recent years, including the key purchase of Letica Group in March, which it believes will provide strong US exposure and help create “a meaningful presence outside Europe.”
Revenue has grown significantly in the last three years, jumping from £1,047m to £2,747 for FY2017, and net profit has surged from £28m to £132m in this time.
More importantly, for dividend investors, the dividend payout has grown at a very impressive rate. The company has paid out dividends of 11.9p, 13.4p, 16.0p and 24.0p since FY2014, meaning that the dividend has more than doubled in the space of just three years.
Potential for capital growth
At the current share price of around 890p, the dividend payout of 24.0p equates to a yield of 2.7%.
While that yield is obviously not that high, the payout is covered 2.6 times and analysts expect robust growth of 11% and 10% over the next two years, taking the forward looking FY2019 yield to 3.3%.
It’s worth remembering that rising dividend payouts generally result in a rising share prices, meaning that if RPC can execute on this dividend growth going forward, there’s potential for capital growth here as well.
On a forward looking P/E ratio of just 12.8, RPC definitely looks like an interesting dividend growth stock in my opinion.
Disclosure: Edward Sheldon, CFA owns shares in Royal Dutch Shell and GlaxoSmithKline.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.